As young adults we all look forward to the day when we are able to get behind the wheel of a car and start learning to drive. If you are just about to turn 17 or maybe starting a little later, the process of becoming a fully licensed car driver is a steep learning curve. Once you have become a competent driver and passed your driving test, the next stage is either buying a car or “improving a parent’s car”. One of the final steps in getting onto the open road is buying car insurance. Most new drivers will ask for help when applying for the first time, this will quickly lead to today’s question.
How Come Car Insurance Cost So Much?
Insurers and aggregators will say it is only to do with claim volume and the cost of paying claims and the level of car insurance fraud. They also state that car insurance is not a profitable business to be in, however this is not strictly correct, as technology has moved along dramatically the level of car insurance fraud is declining and claims volumes are going down.
In today’s post we look at how your car insurance premium is worked out. It will not be filled with super insurance jargon and will be easy to follow. We will look at how many people’s assumptions make their insurance premiums higher.
Starting A Car Insurance Quote
All Insurers and Car Insurance Brokers do state on their quote screens to be as accurate and truthful as possible, which is correct, however they do not provide access to the information you need for it to be as accurate as possible. But we will place links as we go to help you get a more accurate Car Insurance Quote.
Rather than running through a complete Car Insurance Quote, today we will look at the main points that cause high premiums. These are broken down into the two R’s, Rules and Rates.
Car Insurance Rules
Each individual Car Insurer and some brokers will put a set of criteria known as rules into every single car insurance quote. The criteria can be used within the questions, or within the quote system that a customer cannot see or choose. There are generic ones, like driver cannot be a certain age before buying car insurance, cannot buy car insurance if they have too many points etc.
Rules Can Impact Your Premium Price
Although getting Car Insurance for you and others is now more simple than ever, a lot of assumptions have been made by insurers through the many years of data being collected. This does create a stacked deck against the customer, as they answer the questions to the best of their ability.
Each insurer will use files provided to them by the ABI (Association of British Insurers) or currently maintained by Polaris to slightly level the playing field. These include an occupation and employer database file, which the insurer will then apply acceptance rules to and rates (we will come back to this one). All insurers must provide a quote for Car Insurance, if a customer does not match with the insurer’s current preferred customer demographic, they will simply be either rated out (putting them at the bottom of the list) or a rule which could be as simple as job title: racing driver = exclude and load 100%. This would push the quote to the bottom.
Unless you identify the gender of chickens (Chicken sexer is a real role), most occupations do not attract dramatic premium increases. But make sure that you think about what your job title is and in which industry you work in. If you are a sales assistant that works in retail, be specific as some insurers will load a premium depending on what you declare. Take your time to go through the list to find the best match for your job type, and not always the first one that pops up.
No Claims Discount Rules
This rule is quite contentious as all Car Insurance Companies use the same one. Which means that if you are a driver on multiple vehicles you will not receive the full benefit. For example, if you have two cars within a household and you are named on both policies, you will be eligible for a No Claims Discount on each, but you cannot combine them. This means that potentially you will lose money each policy year. Another downfall is the amount of discount you receive, most insurers will discount to 5 years and very little will be rewarded to you after that point.
Saving Money On Car Insurance
After the rules, comes the rates (which works out exactly how much it costs). Each customer starts with a minimum premium and each question you complete will add or discount a set number to get to your final premium.
One of the biggest assumptions a car insurer makes is annual mileage, most people are guilty of just clicking the generic 10,000 miles and thinking nothing more of it. As most insurers use rating bands for uneven numbers, you could be losing out on a discount. The easiest way to work out a closer number to your actual mileage is to use the Government page for Mots, which gives your annual mileage. Or you could try 10,567 as a mileage number, however if you do put a set mile number in then always overestimate as it could cause a claim to fail if needed.
Additional Drivers Can Reduce The Cost
Do you have a partner, sibling that lives with you? Or someone else who needs access to your car (career etc.)?
It could be worthwhile adding them to your Car Insurance and vice versa depending on their points and convictions on their licence. The reason is simple, the more people who can drive the car, equal’s less risk. So if a household with two cars and two insurance policies with a named driver on each policy, the risk would be 50% instead of a single policy with 100% risk. Which could be the first of many discounts.
Another commonly overlooked discount that people don’t trigger is the car itself. Many insurers have a favourite driver profile, these can include lower group cars with different genders. Each car is assigned a number from 1 to 50 which relates to the risk to an insurer. So as a younger adult if you choose to buy a higher group car, you will be penalised quite heavily for your choice.
Discounts You Should Not Attempt
Within the Car Insurance industry one of the many buzzwords is called “fronting” which will invalidate a policy. All parents want to help their children out when they can, however there is a fine line when it comes to Car Insurance. An acceptable method to insure a younger driver on a car is as a named driver on a car that you own and use, as mentioned above with the additional drivers. However if a younger driver buys a car and owns it and then the parent is the main policyholder for the insurance, this is called fronting and can lead to severe consequences.
Other points to avoid which will increase a Car Insurance premium include lots of “car improvements” as insurers do not like a car being changed too much away from the standard model because it increases the potential of a claim. Car Modification is one of the largest reasons why Car Insurance Costs So Much.
As you can see there are many ways why Car Insurance Cost So Much and hopefully some of the above will either help you answer the question of “Why Does Car Insurance Cost So Much?”
There are many other reasons why Car Insurance costs so much, if you would like a question answered, feel free to pop it in the comments or on Facebook/Twitter. If you would like a further post to explain about even more ways to save on Car Insurance, let us know.